Euro firm vs USD; AUD bulls give RBA the brush off

SYDNEY Wed Dec 5, 2012 4:13am IST

A man holds Japanese 10,000 Yen ($121) bank notes in front of a bank in Tokyo November 22, 2012. A 4 percent slide in the yen against the dollar in the last week and a half, driven by expectations that the Bank of Japan would take aggressive monetary policy under a likely new government, has increased the allure of long-suffering exporter shares and pushed Japanese stocks higher. REUTERS/Kim Kyung-Hoon

A man holds Japanese 10,000 Yen ($121) bank notes in front of a bank in Tokyo November 22, 2012. A 4 percent slide in the yen against the dollar in the last week and a half, driven by expectations that the Bank of Japan would take aggressive monetary policy under a likely new government, has increased the allure of long-suffering exporter shares and pushed Japanese stocks higher.

Credit: Reuters/Kim Kyung-Hoon

SYDNEY (Reuters) - The euro hovered at seven-week highs against the greenback on Wednesday but struggled against the Australian dollar, which gained broadly as investors brushed aside a cut in interest rates to focus on its still relatively high yield.

The euro fetched $1.3094, having climbed as high as $1.3109, a level not seen since mid-October. Against the Swiss franc, the single currency rose more than 0.5 percent to an 11-week high around 1.2146 francs.

The euro benefited from a selloff in the Swiss currency after Switzerland's largest banks said earlier in the week they would charge fees and pay negative rates on some franc deposits.

Traders also noted stop-loss selling as technical levels were breached, prompting Barclays Capital analyst Raghav Subbarao to warn the move may not be sustainable.

"We caution against expecting a further rally in EUR/CHF from here," Subbarao said, adding safe-haven flows underpinning the franc have not fully disappeared and negative interest rates in the 1970s were largely unsuccessful.

"Furthermore, this is not a move by the SNB but rather by two private sector institutions, which further limits its effect."

Optimism that Greece will secure much-needed loans to avoid a default also grew after Athens announced better-than-expected terms for its debt buyback.

The strength in the euro saw the dollar index .DXY skid to 79.610, its lowest since October 23. The index has fallen some 2 percent since mid-November and is flirting with support near 79.700, a level representing the 61.8 percent retracement of its Sept-Nov rally.

Against the Australian dollar, the euro was little changed at A$1.2505. The Aussie, however, climbed 0.5 percent on the greenback to $1.0485.

Traders said a quarter point cut in the cash rate on Tuesday to a record-matching low of 3.0 percent was widely anticipated. The lack of any forward guidance by the Reserve Bank of Australia (RBA) led some in the market to conclude that further easing may be limited.

The Aussie last stood at $1.0466, having climbed as high as $1.0485. Immediate resistance is seen around $1.0500. Aussie dollar bulls may further be embolden if third-quarter gross domestic data due at 0030 GMT surprises on the upside.

"The AUD/USD is not rallying on the rate cut itself, but the shifting of expectations from a declining rate environment to a stable one, at least for the next few months," said Christopher Vecchio, currency analyst at DailyFX.

The next RBA policy meeting is not until early February.

Yet interbank futures are still pricing in another 50 basis points worth of easing next year, with markets giving a 62 percent chance of a cut at the next policy meeting in February.

A speech by RBA Deputy Governor Philip Lowe at 0920 GMT on 'What is normal' will be closely watched for his reaction to the rally in the Aussie dollar.

Investors will also be keeping an eye on a private survey of China's growing services sector due around 0145 GMT, looking for more signs the world's second largest economy is indeed regaining momentum.

(Editing by Wayne Cole)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Sino-Indian Ties

REUTERS SHOWCASE

Eyeing Stocks

Eyeing Stocks

Interview - EPFO chief urges green light to buy stocks  Full Article 

Stimulus Reports

Stimulus Reports

China cenbank injects $81 bln into major banks to support economy - reports  Full Article 

Monsoon Update

Monsoon Update

Delayed retreat of monsoon rains to start this weekend  Full Article 

Financing Deal

Financing Deal

IndiGo agrees $2.6 billion aircraft finance deal with China's ICBC  Full Article 

Fed Policy Meeting

Fed Policy Meeting

Fed could hint on rate-hike plans as it prepares for policy turn  Full Article 

Grim Outlook

Grim Outlook

Sony deepens loss estimate on struggling smartphone business  Full Article 

Sugar Surplus

Sugar Surplus

India to produce surplus sugar for fifth straight year - industry body  Full Article 

Business Sentiment

Business Sentiment

China, Singapore slowdown weigh on Q3 Asia business sentiment   Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage